Friday, March 28, 2008

Recession Will Hit Workers & Poor Hardest

This is an editorial that will be in the next issue of Socialist Appeal when it hits the streets.

Almost overnight, the media, corporate CEOs and government officials have gone from proclaiming that the U.S. would somehow avoid an economic slump, to all but recognizing that the country has probably already entered a recession. They are simply acknowledging what millions of workers have known for months and even years: the economy is in trouble, and working people and the poor are being hit hard.

Incredibly, we are told by some pundits that there is nothing to worry about, that it is all part of the “natural cycle” of the system, that less spending on dining and entertainment will lead to a healthier population that eats less and exercises more, that expensive gasoline leads to fewer cars on the road and therefore to less pollution, and so on. Yes, it is indeed part of the “natural cycle” of capitalism, and yes, belts will need to be tightened.

But for some, the “natural cycle” will mean a lot more pain than for others. While some CEOs may need to purchase one less corporate jet this year, millions of workers and poor people will have to choose between buying food, gasoline, heating, medicine, education and keeping a roof over their heads. Merrill Lynch has reported that by the end of 2007, 36 percent of Americans’ “disposable income” went to cover food, energy, medicine and health care, the highest proportion since records began in 1960.

The stock market has taken a beating, as investors realize that the trillions of dollars in fictitious money they have been trading back and forth has little of substance behind it. The dollar has sunk to new lows, oil and gold have risen to new highs, with both food and gasoline prices rising fast. Bear Stearns, once a top-five U.S. investment bank, collapsed in a single day, surviving only due to an emergency buyout by rival JP Morgan Chase for just $2 per share. Less than a year ago it was worth over $158 per share.

The Philadephia Fed index on manufacturing fell to -24.0 in February, from -20.9 in January, a further contraction of the sector. The reading for New York was similarly grim, registering its steepest drop on record. There is a very real danger of stagflation: rising inflation combined with rising unemployment and slow growth or contraction.

The months-long crisis in the housing market has now definitely spread to other sectors of the economy. Home prices have collapsed in many markets, and many borrowers now owe more than their houses are worth. Hundreds of thousands of households are defaulting on their mortgage loans even before the rates reset to a higher level, with twice as many defaults in 2007 than in 2006. The media has even reported cases of people resorting to arson to avoid foreclosure and bankruptcy.To make ends meet, many workers have had to resort to “pay day” loans at exorbitant rates as high as 800 percent. The Center for Responsible Lending (CRL) recently reported that the average borrower has to pay a total of $793 for a $325 loan. Far from helping people, these predatory lenders succeed only in digging a deeper hole for workers already on the brink of financial disaster.

The loss of millions of quality unionized jobs over the last 30 years means that those with less education are more vulnerable to the effects of a recession than ever. In the past, even many people who didn’t finish high school could make a decent enough life for themselves and their families by learning a trade or working at a factory. These days, even college graduates with specialized training are more and more likely to find themselves working at a low wage, dead-end service job.

A “good job” is defined by the Center for Economic and Policy Research (CEPR) as one that provides health insurance, a retirement plan and earnings of at least $17 per hour, or about $34,000 per year. In 1979 there were 19.6 million such jobs in the manufacturing sector, the peak of U.S. manufacturing. Since then, nearly 6 million such jobs have been lost, with another 52,000 down the drain in February alone. 30 years ago, one in five high school graduates had a “good job”, by 2005 it was one in seven. According to the CEPR, in 1979, 41 percent of those who didn’t finish high school had “bad jobs”, that is, jobs without health or retirement plans paying less than $16.50 an hour. By 2005, that figure had reached 61 percent.

As the economic crisis worsens, those who lose their jobs will find it even harder to find new employment, and without savings, unable to keep up with mortgage payments, and a gutted social safety net, millions of people will be “out of luck”. Those that do find work will likely have to take major pay and benefits cuts. Many young people and even some not so young have been compelled to move back to their parents’ homes to try and regroup financially and avoid homelessness.One sector of the economy that remains highly profitable is the so-called “defense” industry. The CEO of Lockheed Martin made nearly $25 million last year. Compare that with the average wage earned by a private in the Army: $25,000. Unable to find work or educational opportunities in the private sector, thousands of working class youth are sucked into the military in an “economic draft”.

Over 4,000 U.S. soldiers and countless Iraqis have died, and the billions of dollars spent on this tragic adventure of imperialism have meant a steady decline in U.S. workers’ standard of living. Bush’s approval rating has sunk to a new low of just 31 percent, forty points lower than it was five years ago when he launched the invasion. This is a decline similar to Lyndon Johnson’s in the late 1960s during the Vietnam War. And still the occupation of Iraq continues, a full 16 months after the Democrats were swept into congressional power with a mandate to end the war. Not one of the Republican or Democratic presidential candidates has a plan to immediately pull all the troops out.

It is in this situation that workers are being asked to vote for either Barack Obama or Hillary Clinton to bring about “change”. There is even talk of a “Dream Ticket” with both candidates on the ballot. This is more than enough proof that there are no fundamental differences between them. At root, they both defend the status quo, albeit with this or that cosmetic change. This is why working people need a party of our own. And not only for those born in the U.S., but for all workers.

On May 1st, workers across the country will march for immigrants’ rights. The magnificent mass movement that erupted two years ago has largely been driven underground by a wave of state terror, with tens of thousands being rounded up in raids and deportations. But nothing fundamental has been resolved. Sooner or later, the mass struggle will erupt again, on an even higher level, as the economic crisis forces all workers to come together to defend their common class interests. In the meantime, the scapegoating of immigrant workers for the problems caused by the system itself has increased exponentially. The labor movement must denounce these attacks and stand shoulder to shoulder with our working class brothers and sisters.John Peterson

12 comments:

I was impressed by the situation in the US is that, in Spain for months that we talk about your financial crisis and that much influence on our economy, especially since oil is paid in a very dólares.Es clarifier. In Spain, at least, health, education and the pension system are guaranteed. Greetings

This crisis is wierd because we did not even hit rock bottom yet and we still keep falling down to new lows, and nobody knows when it will stop.If it keeps it up, the US and other countries are going to get bankrupted, then the trust in the dollar will be lost forever.Europeans have it made compared to Americans, they have everything from their respective government, and even low income people are wealthier than American workers.Europeans might make less money but who cares, they work less too.

Did anyone notice the inflation in this country? The inflation rate does not even correspond to the numbers of the US dept of labor and statistics, it's worse than what they predicted. Example: 1 gallon of milk costs almost $7 here in the Bayou city, and 1 dozen of eggs costs $2.50.

Here is the trailer of a documentaty in which I took part, it's called "who will stand for us" and the documnentary should be available in june 2008 if everything goes well:

http://www.whowillstand4us.com/trailer.html

The documentary is almost shot, then it will go to the quality dept. Aftewards there will be another documentary about the financial scandals in the US that are at the origin of the crisis.

For the mortgage crisis, the US banks are running out on cash lately. So these idiots came up with this fantastic idea to raise the price of the escrow on the houses, and the prices per months went from 400 or $600 more on the monthly loan. As a result, people are so pissed off that they are moving out from their house, and others decided to stay for free in their house until they get kicked out. And you know the banks always threatened their customers if they don't pay, and they always tell them "if you do not pay we'll add it on your credit record" but guess what? In some offshore banks, they were selling loans to people who were illegal in the US, and they can do it in all legality by supplying what we call an ITIN number. Now, the illegals who do not want to pay their loans are free and clear since they don't even have a social security number. In some cases the number of houses sold to illegal was even higher than the number of houses sold to legal people. Incredible what money can do to people.

PS: In order to save some money, I don't go to walmart since it's so expensive. Instead of that, I go to the mexican markets (El Marcados) where you can get your food for 3 times less the amount of what walmart would bill you. 20 pounds of marinated chicken costs me only $20. This way I can afford to buy other products that became more expensive. And yes you have to cut off your expenses somewhere :S

PS2: don't get rid of the penny, we'll rename it the dollar (Bill Maher).

There should be much more upwelling of anger and sense of betrayal but there is no organized resistance.Sad. The immigant worker gets forced from his land then demonized for working hard for low wages!

Of course I agree with the piece, but I'm wondering what the best solution to fix this mess is. As Ralph Nader can attest, the corporate duopoly is less than willing to allow a third party to emerge. I have a tough time believing the political route will produce any real change (although I do find Dave Marlow's Federalist Socialism very interesting)

Since the 70s until now there has been around 24 economic crisis in the world. It's almost 1 crisis every year and a half. The 1st economic crisis in the US was in 1907, I believe, when Theodore Roosevelt tried to redistribute wealth to citizens and this date is important to understand that the power of the President in the financial economic world became very limited: there is a need to impose economic reforms but our economic system is autistic as long as they won't control the invisible hand of the finance gurus. Even with rigid economic rules, the traders (the french Jerome Kerviel for example) can bet large amounts of money with the full complicity of the banks without being detected by the conventional financial audits. Simply put, the economic crisis are the results of the banks taking too many risks by gambling too much money, and after each economic crisis the credit costs become more expensive. Since the XXth century the banks are allowed to gamble their "synthetic trade" while it was completely forbidden during the XIXth century: lots of economic deregulations are unfortunately the product of the economic crisis, and this is why it is important to reform the system.The simple rule would be to go back to Adam Smith's theory where we have to control the economy to avoid financial crisis. If you let the finance to herself, she will become instable. Besides any crisis does not really depend on a unique model - I personally think it's not healthy to compare the actual crisis to the crisis of the 30s - but it rather comes from historical, social, political characteristics in different capitalisms; so in other words we can't really expect how bad the crisis can be and how low it can go. The main breaking point in an economic crisis will come when everybody will start phreaking out on the markets, and they'll have to start spending their economies because they can't afford to buy products. Which means we should fight inflation first (possibly).An economic crisis deals also with newtonian theories: it's possible to slow down a crisis but it will always crash at some point.

This XXIst century is a new fight for us like I told you earlier. It has nothing to do with marxism and it has everything to do with the population against the financial institutions for many reasons. One of the main reasons come that finances have been segragating black americans until the year 2000. Black americans were charged more on their insurance premiums than white people. The banks may have done it for statistical reasons but it does not excuse them from segagrating people for economic rasons. In the book "a financial history of modern US corportates scandal from Enron to reform" it is quoted in page 532:

Several insurance companies were still charging some black policyholders higher premiums than whites in 2000. Rates in the 1960s for blacks had been as much as 25 percent more than for whites because of longevity differences,but that disparity was dropped for new policies after civil rights activists protested against it. Some of the insurance companies failed to reduce the premiumsfor existing policies; those payments continued right into the year 2000. Chicago, Detroit, Philadelphia, and Los Angeles adopted ordinances requiring firms contracting with those cities to disclose any links they might have had with slavery before the Civil War. Lehman Brothers had to disclose that one of its original brothers was a slaveholder and JPMorgan Chase had to reveal that it had some tangential ties with the Citizens Bank of Louisiana that accepted slaves as collateral for loans.Insurance companies and other financial institutions were asked to pay for some old sins. Lawsuits were filed against FleetBoston, Aetna and CSX, New York Life Insurance Company, Lehman Brothers, Norfolk Southern Railway, Liggett (the tobacco company), and Lloyd’s of London, among others, seeking reparations for their having exploited slaves before the Civil War.

camino: Neither liberal or conservative politicians, propose social reform as free healthcare etc. That is because capitalists are competing with each other. Even reforms like Social Security are in danger, even if the crisis is fake.

foxessa: This post was written for a mass newspaper.

Troutsky: After Obama wins, there will be a honeymoon period. When people see he is the same as others, there will be opposition.

They just proposed this morning an economic reform:http://news.yahoo.com/s/ap/20080331/ap_on_bi_ge/fed_overhaul

The purpose of this reform is to get more control for different financial institutions. The Demz accuse the Republicans that part of the crisis come from the lax of regulation in mortgage and banking, which is partially true: most of the people in the US never read their contracts when they buy a house, they start reading the 1st few pages, then they stop at the 10th page because the contract is longer than 100 pages in 2 samples, and they don't read the 'too many conditions' of the contract. Also most of Americans are under an ARM instead of a fixed rate and the ARM is the heart of the problem in terms of bankruptcy: interests rates and other charges start rising after the 1st year, doubling or tripling the amount of the loan. To top it off, brokers, lenders, loan officers and bankers are only interested in making their bonuses so they'll always cheat out the system.

If ever the economic reform happens it would be the 1st time since 1939 that the US defends the right of the consumers.

Ren eye I just read this interesting essay. Well part of the crisis in the US comes from the incapacity of the government of not favoring enough US goods for one simple reason: they prefer China to produce the goods because China can buy them T-bonds. It's possible to develop again the worker's participation in this country but they'll have to curve the laws and give them social advantages. So far no political party is in a position to do that, they are more interested in business with China.The low dollar would have allowed to boost the manufacturing product in this country, but since the Chinese keep devaluating their money against the dollar, this will never happen, and this is why the crisis is more dangerous than ever because there won't be a reshaping of the economic activity during the crisis; it is the whole political and financial system that is going to be put in question during the crisis.

PS: have you watched my documentary? Well it's not "MY" documentary but I take some credits because I did take part into this documentary. Go to www.whowillstand4us.com

In financial engineering they use numerical methods to optimize their multi-criteria and stocastic models (IE the Pontryagin theory, or the Kendrick-Taylor model ...etc) so that they can push the numbers, but the philosophy of finance is all about making money and extending their profit margins. And if you want my opinion about this question (the African Americans), it is not a human mistake when the corps decided that, because the aim of financial engineering is to model also optimal social choices. Now the financial corporations are trying to get away with it, justifying that a quotation price may fluctuate within a few days or even hours. It is the whole economic system that is unable to detach itself from the length of the time, and you can even find nowadays these quotations at your insurance agent or your building manager. The american economy needs to be reformed because it's not credible anymore but I suspect they won't fix the problems.